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Thai government pushes credit-rating boost

BANGKOK—The Pheu Thai-led government is hopeful of an upgrade in Thailand’s sovereign credit rating, believing the economy has apparently sailed through the global economic crisis and political stability has returned to some extent.

Deputy Prime Minister Kittiratt Na-Ranong said the Fiscal Policy Office and Public Debt Management Office would update credit agencies on the Kingdom’s status, seeking a revision in the sovereign rating.

“The sovereign rating has not been an issue for some time as the government rarely borrows from overseas lenders. But the sovereign rating is important, as it reflects on corporate funding costs. Credit-rating agencies should be updated that the Thai economy is solid and there is a chance for an upgrade,” he said.

Thailand’s sovereign credit ratings were downgraded in 2009 following political instability, which had led to the closure of Suvarnabhumi Airport in 2008 and resulted in riots in subsequent years.

The Thai government’s positive move bucks a global trend, as all countries are expected to be directly or indirectly hit by the global crisis—triggered chiefly by the euro-zone debt crisis and the US fiscal “cliff”—a large predicted reduction in the US budget deficit and possible resulting slowdown of the economy.

Still, Asia, particularly Southeast Asia, has so far been recognized for its resilience to the intensifying crisis in the euro area. Standard & Poor’s Ratings Services this year raised the sovereign rating of the Philippines to “BB” on rising fiscal flexibility and of Korea to “A+/AA-” on reduced geopolitical risks. S&P maintains Thailand’s sovereign rating at “BBB+.”

In Bangkok in March, S&P analytical manager for sovereign ratings in Asia Pacific Tan Kim Eng noted that Thailand’s government debt is essentially lower than that of other countries in the same category. But political instability remains high, which poses problems for public investment projects.

Moody’s Investors Service and Fitch Ratings maintained Thailand’s ratings at “Baa1” and “BBB,” respectively.

S&P said in a statement yesterday that the euro situation remains a big threat to the sovereign ratings of Asia-Pacific countries in the coming months. Negative action could be taken on India’s rating, and it did not expect any positive trend in the past six months to continue in the coming 12 to 18 months. Economic conditions in the developed world and elsewhere remain weak and uncertain. Where credit metrics are already weak in their rating categories, policy mistakes or hesitancy could drag sovereign ratings down, Tan said.

At the Fitch Ratings Annual Conference 2012 on “Global Risks and the Outlook for Thailand,” David Riley, managing director of Fitch Ratings and head of global sovereigns and supranationals, commented that the euro situation, fiscal deficits in the US and China’s economic slowdown will be three major downside risks for Asia, including Thailand. Yet, he added that with strong fundamentals—public debt at a controllable level, a strong financial sector and robust domestic demand—Thailand has ample room to absorb external shocks. Fitch still maintains its forecast that Thailand’s economy will expand 5.5 percent this year, against 5.6 percent forecast by the International Monetary Fund and 4.5-5.5 percent by Thai government agencies.

Among countries in the “BBB” category, Thailand performs better than its peers in the areas of public debt, net external debt and budget deficit. Still, against a political stability median of 48.1, Thailand’s score is 12.7.

“Thailand has a very strong external balance sheet, which will shield it from global shocks. Though, it’s not immune to global downturn,” Riley said, adding that it would take a number of years to clear the euro-related storms that have put the global economy at great risk.

 

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